Read the full letter from the American Financial Services Association here.
Fundamental to the discussion of APR caps is an understanding of what APR is and what it measures. APR is a measure of time, not cost. As an example, A $100 loan with $1 in interest is 1 percent APR if paid back in a year, and 365 percent if paid in a day—but the cost is still $1. For this reason, APR limits such as those contemplated in SB 39 are an inappropriate way to regulate loans in general. They have little bearing on the true cost of credit and only serve to eliminate good sources of small dollar credit along with bad.
In fact, there is now a preponderance of evidence that points to the fact that “All-In” APR limits eliminate small dollar credit in the states where they exist. This disproportionately affects those with developing credit scores who have yet to reach the stage at which they qualify for bank credit, and forces those who are lucky enough to qualify for credit into much larger loans than they need—thereby increasing their debt.